1. Shutdown Continues, That’s Good?
U.S. government shutdown continues, and with this; we are not getting an data. Next week is supposed to be U.S. inflation data, but will we get it?
Here’s the thing though, with no data available, what are the chances Fed becomes more dovish? Just a thought for now, but lets see. Later in the month, there’s a rate announcement.
This afternoon, we also get Fed meeting minutes from the last meeting. Let’s see if there’s anything interesting in them. Plus, bunch of FOMC members are speaking today as well. Watch for rhetoric.
On top of all this, there’s a 10Y bonds auction. This has somewhat history of causing some selling in stocks if the auction doesn’t go well.
2. Gold Is In The Headlines
It is very important you know this: gold is in the headlines. I just went on every major financial news source that gets quoted everywhere, gold is there – Bloomberg, CNBC, Marketwatch, WSJ, Yahoo! Finance, etc.
What does this mean? My view: gold is becoming a very known trade. I know it has been getting crowded as well.
Can it go higher? Yes, very possible. But, it’s important to know that wild things happen when its a known and crowded trade.
Also, this isn’t the first time I am seeing this movie. I am seeing lots of garbage in the mining sector catching a bid. It might be a good trade for now, but don’t get married to the trade.
3. Stock Market Is Falling Apart?
Yesterday major indices ended red, and did you see all the headlines? If you didn’t look at the indices and just read the headline, you’d feel the world is falling part. Far from it.
Look, the long-term trend remains intact for now. Keep a close watch on the 50-day moving average of S&P 500. Its around 6,517 right now or about 3.1% below the current levels. If this breaks, then odds of bigger downside increase.
How come stock market keeps going higher when economy seems to be rolling over? Earnings expectations keep increasing, and very few names are actually driving the market higher.
4. Do We Have A Bubble In AI?
My view: bubble is when you have extreme price appreciation along with valuations, extreme expectations, and significant fear of missing out (FOMO). Go look at previous bubbles (start from Tulip Mania), and you will find all of these factors at play.
Do we have this in AI stocks? Yes. Valuations are crazy, money is flowing in, expectations are as rosy, and the concentration tells FOMO is super high.
But, know that all of this can go on for a while. Timing the pop is the most dangerous thing you can do because price is against you.
For some perspective: Dot-com stocks were being called a bubble since 1996, the bubble didn’t pop until few years later.
5. Flight To Safety…
This is not being talked much, but I have a feeling we are seeing some sort of flight to safety as “nothing can go wrong,” and “this time its different,” sentiment prevails.
Dollar index is rising, yields are dropping, utilities surging (but could be AI play), and staples finding some support.
If you add gold catching a bid like no tomorrow, it’s just making the idea of flight to safety compelling.
Time will tell more. Keep in mind: markets come down super fast, and go up slowly.